Looking for thoughts/insights/experiences of anyone who think they can offer advice. This isn't going to be a mortgaged purchase.
I'm considering using some capital to invest long term in a property. In my mind, there are three options -
1 - Buy a one or two-bedroom flat somewhere urban (probably Stirling area) and rent it out on a long term basis. Plus points of this seem to be it's relatively trouble-free if you get a decent tenant and I'd be protected from seasonality. The downside is that I'd never be able to use it for anything other than a piece of capital and an income.
2- Buy a cottage somewhere rural in the UK, and within a reasonable travelling distance, that we enjoy spending time and rent it out as a holiday let. Plus side is that we get a holiday home to use when the hustle and bustle of Central Scotland all becomes too much for us. We get an income from the holiday lets, and we have the property as a long term asset. Downside, seasonality, more footfall therefore wear and tear, more requirement to "keep up with the Joneses" in terms of extras like hot tubs, wifi, satellite tv etc.
3 - Buy one or two cheaper/smaller flats and let them out at a cost+ nil margin basis. This feels like the liberal thing to do given how inaccessible affordable housing is, and it may be helping someone less fortunate to get somewhere to live. Plus side is that I'd feel less like a corporate fat cat investing my cash in screwing more profit out of someone. The downside is that I'd earn no money other than any incremental increase in property value that I'd only gain when I sold it.
Buy a one or two-bedroom flat somewhere urban (probably Stirling area) and rent it out on a long term basis. Plus points of this seem to be it’s relatively trouble-free if you get a decent tenant and I’d be protected from seasonality. The downside is that I’d never be able to use it for anything other than a piece of capital and an income.
ahahahahahahaha
Sorry, jaded and selling up landlord here. I'm on record here before saying landlording is not easy, with the tax changes not as profitable, and that one shonky tenant can wipe out three years profit (been there, have the court documents). Added to which our good size 3-bed flat in Aberfeldy has seen a 10% rise in value in 10 years - and that doesn't include the capital investment of new roof and bathroom I have made. We don't pay a manager, we do it all direct. Our flat was bought at £118k, worth maybe £125k/130k now, lets (reliably I have to say) at £575p/m and this year after tax I will likely make £500-700 as we once again redecorated for the incoming tenants last January and replaced the extractor fan.
Personally, I think there are easier and more profitable ways to invest.
I'm Aberdeen with a mortgage free 2 bed flat prime westend with parking. Can't rent it out now for love nor money, and that's with the rent dropped pretty much half in the space of 10 years. Aberdeen market is saturated with rentals, not sure what the Stirling market is like
I would go option 2 so you have a nice holiday home bolt hole to enjoy. You don't need to make it top end and up with the Joneses as you say
I’ve got a few houses with long term tenants. One is about £150 under market value the other one isn’t.
Neither is rent and forget. Estate agents are useless and you will pay through the nose for anything they sort out if they can be bothered.
Treat people as cash cows you get problems, treat them as people renting a home and who sometimes have difficulties it will go much better.
I’m in the trades and all work carried out by mates is at the going rate as they know I make money on them so fair enough.
If I knew a way to make the same money with zero effort I’d take that option, all ears if you can help on that front.
2- Buy a cottage somewhere rural in the UK, and within a reasonable travelling distance, that we enjoy spending time and rent it out as a holiday let. Plus side is that we get a holiday home to use when the hustle and bustle of Central Scotland all becomes too much for us. We get an income from the holiday lets, and we have the property as a long term asset. Downside, seasonality, more footfall therefore wear and tear, more requirement to “keep up with the Joneses” in terms of extras like hot tubs, wifi, satellite tv etc.
I'd be doing this option - as above, normal letting is a royal pain in he 'arris.
And you get a nice retreat to use when you want/go and live in when you retire.
Long term, property values are almost guaranteed to rise.
Got both. A long term let in Edinburgh which has had the same tennant for 18 years and a relatively recently acquired holiday let. There's no right or wrong answers but consider age and structure of the building, whether there is a factor, very local environment etc.
Holiday letting has better tax breaks (you can offset any finance costs) but there are changes afoot in Scotland apparently. Also consider what the long term aim is. If you aim to sell it at some point then CGT needs to be considered, think about trusts etc. Quite a bit to think about beyond the obvious.
And that's without the ethical questions around whether you should be depriving someone of a main home to buy.
Was an accidental landlord following the 2008 episode and negative equity for a bit when we wanted to sell up but couldn't so ended up renting the flat and renting somewhere else.
Wouldn't ever do it again.
To be fair though we purchased the flat just before the crash, lived there for 5 years, rented it out for 7 and walked away with over 20k in capital that wasn't taxed.
The rent covered mortgage and other costs, as said above we never made thousands each year like you hear on homes under the hammer "You'll get a yield of 8%" which you just don't after expenses.
There was the constant worry of do we have dickhead tenants who will cause us hassle, some did in minor ways but we were lucky. As with anything making money is a risk.
Plus the tax changes to mortgage interest made it really pointless so that was a good reason for us to offload the property.
You don't say what you ultimately want the money to do - If it's for cashing in/selling the houses to fund retirement eventually, then putting the cash into a pension instead makes sense as it gets an instant uplift from the tax break + market growth. If you want extra monthly income (although it sounds like you don't), then other investments are more accessible and less hassle than property. Things like VCTs also give you an instant 30% return (albeit at a higher risk).
The fourth property based option is what we did - spend the money buying a 'nicer' house to live in. You still get the potential capital growth, no worries about CGT, tenants or (extra) maintenance costs and you get to enjoy the space/location every single day.
With option 2, who will do change overs if its remote from you? If you use an agent that'll eat into the revenue.
I loosely looked at this and realised the the capital inside an ISA in a low cost index tracker was likely to have a higher yield (up 24% in 18 months) and be set and forget.
Just need to bear in mind you can "only" put £20k/pa into an isa wrapper - most likely not an issue unless you have the ££ value of a house sat in a cash account.
I have some experience with this and if you think a long term tenant in an unfurnished flat is a pain in the arse then you'll love weekend tenants in a furnished place 🙂
Expectations for AirBnB type stuff is incredibly high, people expect 24hr reception style service and will call at any hour (cant get heating to work, dishwasher broken, sink blocked etc).
Some of them also don't look after the place particularly well as they are only there a short time and feel like they have paid good money for it. Food stains on furniture or carpet not uncommon, muddy boot marks on carpet, marks up walls from taking bags upstairs to name a few things.
You also have the added hassle of bookings, handovers and cleaning. Cleaners for that sort of place can be unreliable and expensive and unless you are nearby and can check up on the place constantly, you are in a for a world of hassle.
You will also find yourself spending a lot of your "holiday" weekends at the place fixing, decorating and doing the little jobs that need doing but not worth getting a tradesman in for. You will also find yourself getting resentful as it is the third time this year that you have painted the hallway walls and you cant understand why people cant just take a bit of care as they would in their own house.
If it was me, I'd get the long term rental and spend your leisure time staying in somebody else airbnb or a hotel.
There isn't a right answer so there is lot for you to think about. We have a little invested in property and it's been very good (commercial property before the haterz jump in). Renting below market rate has made life easier. Tenants have been easy to find and stay longer and it has been pretty much fit and forget. Even with below market rate the money that comes in every month is very nice, and the capital growth has been pretty crazy (looking at what things are selling for now). We have also recently dabbled in option 2. Bought a derelict property very cheaply with a view to doing it up as a holiday let that we can use in the shoulder seasons. Its been very slow progress but it has been an absolute joy to visit the place, camp there, do some gardening and a few odd jobs, excellent MTBing on the doorstep. Luckily it doesn't really owe us very much so it doesn't need to make money fast. The tax situation is complicated and needs looking into but certainly isn't all doom and gloom.
2- Buy a cottage somewhere rural in the UK, and within a reasonable travelling distance, that we enjoy spending time and rent it out as a holiday let.
^ This.
I rent out a 3-bed semi in a popular Somerset town. I became an 'accidental landlord' when I moved-in with my GF (now my wife) and decided to rent out my old home six years ago. Now I pretty-much rely on the rent from it as my sole income - it was certainly all I had coming in during the Spring/Summer when all my work dropped off a cliff. My tenants couldn't afford to pay for a couple of months during Lockdown 1, and suddenly I had no income at all.
IMHO, being a landlord is a blessing and a curse. As someone else above said, it's not a gravy train - you are taxed left, right and centre, and bad tenants mean you are in a living nightmare. But get good tenants, be a good landlord and it's relatively pain-free income.
Touchwood, I've been very lucky. The house has not cost me much since I've rented it out, and my two sets of tenants have been 'OK'.
Do bear in mind Capital Gains Tax. You wanted a long-term investment, but if you decide to sell-up in (say) 10 or 15 years, you might be in for a nasty surprise. Was thinking of selling my house with a view to buying something nearer to rent out and/or raise some capital to co-buy our new marital home, but the CGT on my house would be crippling (price rise of £100k in eight years).
My 'Plan A' is to keep it and continue to rent it out. I/we have no pension worth speaking of so the house should do me/us right till I pop my spd clogs.
Spent the last few years involved with the private rental sector in England from a government research kind of angle.
There are very few private landlords getting in to the business, and a lot selling up. More regulation to comply with, reduction in tax advantages seem to be making it harder work for less effort.
One bad tenant can wipe out years of profit. In the current climate of job uncertainty, there will be more people at risk of becoming "bad tenants" from a business perspective, Local Housing Allowance is not intended to cover the full rental cost of many tenants.
Longer term, there's been talk recently of the government looking at capital gains tax to recover some money, so I'd certainly say it was a less attractive proposition.
The holiday let option may be a better option, especially big people get into the habit of fewer foreign holidays.
One bad tenant can wipe out years of profit. In the current climate of job uncertainty, there will be more people at risk of becoming “bad tenants” from a business perspective, Local Housing Allowance is not intended to cover the full rental cost of many tenants.
Especially at the bottom end of the market eg 1 bed flats etc, where you tend to get young people in insecure work whose hours may be cut at zero notice....
Another accidental landlord here after moving in with girlfriend (now wife). A total pia. I made nowt out of it and it was just a ballache - pleased to see the back it when I finally sold it.
I hated being a landlord. HATED IT.
(After my mum died I rented her small cottage in the Peak District out for around 4 years before selling).
I honestly can't think of a harder way to earn £600/month, even with the additional bonus of the capital growth.
And that was in the main with perfectly decent tenants - I can't imagine how stressful it gets if you end up with people who wreck the place or don't pay up.
Having read a few posts it is interesting to hear differing points of view. I like being a landlord. I actually enjoy the maintenance side of things. Some jobs are a pain but generally I like fixing things. Our derelict fixer-upper mostly involves heavy duty weeding and trying to keep the rain out of the structure. I expect a lot of people would not enjoy a weekend of doing that but we like it. It is very satisfying for us to bring a building back to life and its a lovely place to spend a long weekend. Itching to go back after limited visits this year. I totally get that others may not feel the same, though.
3 times over accidental landlord here (everytime we've moved it's been cheaper to buy a new place and rent the old out), pretty much whats already been said, bad tenants can wipe out years of profit, even good tenants can cost a fair bit (some seem amazingly clumsy/unlucky) Managed or not repairs become seriously expensive when either an agent arranges it or the tradesman finds out it's a rental. It's all but impossible to put rents up on good tenants as the risk they leave is too great. It's also a fair bit of hassle even when it's managed.
There are also a lot less in the way of tax breaks than there were, and I'm not expecting ot make any capital gains on any of them any more, whatever the market makes, it's pretty likely the tax man is going to take pretty much all of it.
They are our pension which is just as well given the current return on pensions (40k pot currently get's you 1k income p/a) but that's going to have to come entirely from rent. It's not easy money, and the capital at risk is much bigger than it first seems, and the return much less, but it's still better than savings and pensions at the moment.
Long term, property values are almost guaranteed to rise.
That's a bold statement
in real terms they didn't recover their 1989 prices until 2003. they're still way below the 2007 peak. Look at the US market and you'll see areas of the country that just become less desirable long term -
https://www.economist.com/graphic-detail/2016/08/24/american-house-prices-realty-check
Dallas and Houston have never even got close to prices in first half of 1980s. Detroit too. Pittsburgh managed to basically flatline through multiple house price bubbles....
I'm not an economist but house prices are weird. They bear no relation to the underlying asset - most of the value is in the land not the bricks. Turnover is only about 6% - ie only 6% of UK homes change hands each year. Demand is driven not by incomes (because few people buy outright) but by availability of debt - ie interest rates and loan to income multiples.
House prices to income multiples seem mental in the UK. Property ownership is concentrated in older, baby boomer, generation. Loads of people depending on cashing in parents property when they die. But lots of homeowners are going to die pretty close together - ie at some point over some years theres going to be a lot of houses for sale.
Bought our last place (new build) for 130k in 2006, sold it 7 months later for 141k.
The folk that bought it from us sold 11 years later for 135k, Property doesn't always rise in value.
I’m not an economist but house prices are weird. They bear no relation to the underlying asset – most of the value is in the land not the bricks.
Supply & demand. The problem with the UK averages is they hide big regional differences. Desirable, high jobs, high growth areas grow faster and recover quicker. Economically deprived areas will behave differently. I can see Brexit affecting anywhere involved in manufacturing / export as the jobs go to Europe over the next few years and demand falls away. The City / SE will be less affected, but still grow slower due to the reduced growth in GDP.
Going back to the 89 peak and subsequent bust, most of the negative equity was in smaller properties as there was a huge rush to get on the housing ladder and ride the housing boom. Larger houses were less affected as demand wasn't so strong as they were out of the price range of the hoards of first time buyers pushing up prices.
I get why people do it but I hate this
Buy a cottage somewhere rural in the UK, and within a reasonable travelling distance, that we enjoy spending time and rent it out as a holiday let
I have a job in one of these popular rural places and its impossible to rent anywhere nearby as prices are extortionate and no one wants to rent long term as they make way more money from holiday lets and air b&b. They're killing the local town
Different option is buy land and take advantage of one of the tree planting incentive schemes, up to 100% of planting, fencing etc eligible. Locked in for 10 years
No cap gains or inheritance tax
Setup a small forestry business to take advantage of VATfree rates
My experience as an accidental landlord is somewhat different to most folk above. Its been virtually hassle free. But we bought a long time ago so the investment in comparison to the return is a very different sum. Its also literally next door
1) do your sums assuming 9 months rent a year. If you get 12 great but doing this allows for empty periods and allows you to build up a reserve
2) Rent below market value so you can get new tenants easily and therefore can choose
3) Treat the tenants well - covid has cost us £2000 in reduced rent.
For Holiday lets do the sums on 50% occupancy ( as it takes a year or two to build up the reviews that make letting easy) an remember that you need an agent who will take a lot
Don't expect a lot of capital gains over the next ten years or so.
Landlord here who is just selling our last property. Its not the hassle but we don't make a lot of money out of it (we rent well below market rate so that is our fault) and it just seems to complicate life.
After CGT it will allow mortgage on our house to be pretty much paid off if we dip into ISAs.
No idea what to do with spare cash then. Some guy in Nigeria keeps emailing me some investment options but will probably just stick it in the markets somehow. (Wife and I both still working for 5-10 years.)
Landlord here, same tenant 10 years in one, brilliant never says anything. The other one has been a series of flat surfers, some good some a nightmare. 1lot had a party that got out of hand in a newly returned flat, cost them 3k in damages.
I m actually looming at buying another but a 3 bed semi, residential area, will pick a young family for a long term deal.
Some areas are chronically short of decent rental accom, some awash with it. Rents in London have held up, for mine anyway I thought I d be taking a hit like the Aberdeen 'll above.
Secret for me is choosing the best places to start with, they attract good tenants. 15 years into the venture seems to work, they are never empty.
Quite a glut of properties near me that are ex HMOs. Was going to buy but as I have to work all day from home the building work required would be too intrusive. Lots of the baby-boomers are now selling their investment.
Was thinking of selling my house with a view to buying something nearer to rent out and/or raise some capital to co-buy our new marital home, but the CGT on my house would be crippling (price rise of £100k in eight years).
bit OF but you should have a couple of tax breaks as you lived there, then rented it out. I sold a btl place that we'd owned for 12 years and rented out for 6, total gain was £130k, total cgt was zero
Do you already own your own home? What is the value of that versus your other investments?
I suspect, like most people, you are already significantly exposed to UK resi to housing stock via your own home, which is an amazing tax free 'investment' given the capital gains free status of your primary residence.
Holiday homes... almost never 'worth it' financially. It is hard to get the balance between what you want/need in a rental and what you want/need for it to be your own holiday home. You loose most of the intangible benefits of your own holiday home if you try to do a hybrid rental-occupy model as you can't have it 'just so' and always available.
You need good a very good property manager, which takes a huge chunk out of your earnings.
BTL property - so many of the benefits have gone and the burden is high. Honestly it's not the same game it was even 5 years ago. I was a LL about 10 years ago and even then the scales were starting to tip with regards to the regulatory burden. Ongoing hassle even with good agents and good tenants, this is not passive investing.
IF you have a property close by, are handy and actually like fixing things that is much better than being remote and hands off.
Yields are relatively low when you exclude capital growth, and I wouldn't bet on capital growth over the short to medium term.
Investing into a property fund gets you property exposure whilst being passive, not sure I'd make a bet on commercial or resi property prices at the moment.
If I were you I would sit down with a good IFA and run through what is important to you (yields, risk, effort, lifestyle) and come up with some investment options that suit.
Holiday let, prime season you can't use it or its costs you £££
More maintenance more wear and tear
More hassle due to cleaners etc. Higher agent fees.
Displacing the local community
Saying all that higher yield but you need to be sure you can fill it to its break even point every year
. I sold a btl place that we’d owned for 12 years and rented out for 6, total gain was £130k, total cgt was zero
@5lab how did you manage that? Surely you would have had gct on 4.5yrs x £10.8k less £12k current allowance. Asking because wife is in similar position but didn't rent out just let our kids live there.
Surely you would have had gct on 4.5yrs x £10.8k less £12k current allowance. Asking because wife is in similar position but didn’t rent out just let our kids live there.
there was 40k letting relief in play as well - I think that was abolished earlier in the year though (I sold up this time last year)
there was 40k letting relief in play as well
Thanks - that makes sense, still need proper advice when she does tax return for it as complicated by ex partner etc.
Edit - just seen that private residence relief has been cut from 18 to 9months since April (were supposed to complete in March but got stuffed by lockdown) so something else to add to the tally of losses incurred 😒
I have a really great rental, decent tenants, ok agent. After everything’s paid each month and a modest amount held for wear and tear type maintenance there’s maybe £100 left each month as profit. I put in £50K when I sold my place to my ex so it’s not worth it financially.
That’s before the surprise maintenance requirements that you have absolutely no warning of. The last one was the dormer window roof needing replacing. £1300 and tenants expect these things to be sorted immediately. New electrical inspection certificate required this year and every 5 years. I expect regulation / inspection
requirements to increase in the future as governments try to make private renting a more acceptable alternative to ownership.
Saying that I’m quite happy for someone to pay my mortgage in Yorkshire while I rent somewhere else in London and if I had the money I’d buy another one but I’ve always had in the back of my mind that I might live in it. COVID might make that a reality sooner than I though as WFH is now realistic.
If I already owned the home I lived in and could afford it I’d be looking at a place in the Alps / Spain and possibly making it available to friends for running cost contributions.
I have a job in one of these popular rural places and its impossible to rent anywhere nearby as prices are extortionate and no one wants to rent long term as they make way more money from holiday lets and air b&b. They’re killing the local town
The solution is for local authorities to be able to designate use classes / zones similar to planning or set quotas. You need a mix of all types of housing and the free market always skews to one extreme or another.
I loosely looked at this and realised the the capital inside an ISA in a low cost index tracker was likely to have a higher yield (up 24% in 18 months) and be set and forget.
This. Zero hassle.
Spend the hours and hours you would have sorting / refurbing a rental doing paid work for someone else or riding your bike.
You'll make more and live longer. Property is only attractive on the face of it as people think they understand it, get a bit of financial education. The only landlords that do well screw people over / border on the illegal.
We used to have two rental properties, one in Manchester and one in the next village from us in Shropshire. The first was a nightmare and we soon got rid of it, after the last tenant the entire house had to be gutted and chemically cleaned.
However, the other house in an adjacent village is fit and forget. We pay a letting agent and pretty much forget we own it. It’s been like that for eight years, if it ever becomes a hassle then it will get sold but I expect we will have it for many years yet 🙂
This has been super useful, thanks all. In the position of potentially being an accidental landlord, but from reading this I'll be working hard to prevent that happening.
Property is only attractive on the face of it as people think they understand it
Well - it's also the massive leverage that you can realise through a mortgage. Investing in shares might give similar or better returns than property, but punters like us generally can't do that with £100s of thousands of other peoples' money borrowed at very low rates.
Well – it’s also the massive leverage that you can realise through a mortgage. Investing in shares might give similar or better returns than property, but punters like us generally can’t do that with £100s of thousands of other peoples’ money borrowed at very low rates.
You could take our a (2nd) mortgage on your home and invest the money in the stock market....
Wait until the middle of 2021 and there should be a load of cheap houses coming on to the market.
You could take our a (2nd) mortgage on your home and invest the money in the stock market….
generally can’t do that with £100s of thousands of other peoples’ money
It's not quite the same thing if your family could end up homeless if it all goes wrong.
Another alternative is HMO’s if there’s any demand for that in the area you are.
I’ve got a few of them and personally i haven’t seen a downside yet. 6 tenants in each ( so a 4 bed house with lounge and dining room also used as bedrooms) all renting a room and I pick up the bills. If one leaves there’s a queue of people waiting to go in. You will occasionally get stung with a bad tenant but as you’ve got 5 other good ones paying rent there’s never any void months. Depending on what you pay for the property you should be looking at a return of not less than 15%.
Just make sure your house is my a cut above the others available and get a good letting agent (I manage them myself) and you’ll have no issues.
(Not wishing to detract from the OP's Qs, but
bit OF but you should have a couple of tax breaks as you lived there, then rented it out. I sold a btl place that we’d owned for 12 years and rented out for 6, total gain was £130k, total cgt was zero
I lived there for the first two years and have rented it out for the last six. It's alarmingly gone up £100 in value, and by my back-of-a-beermat calculations I'd be paying c.£25k in CGT. Quite happy to be proven wrong, tho!).
Going back to the 89 peak and subsequent bust, most of the negative equity was in smaller properties as there was a huge rush to get on the housing ladder and ride the housing boom. Larger houses were less affected as demand wasn’t so strong as they were out of the price range of the hoards of first time buyers pushing up prices.
Smaller?
3-bed semi in Leeds, bought in 1988 and took until 1999 before it was worth worth than we paid.
I lived there for the first two years and have rented it out for the last six. It’s alarmingly gone up £100 in value, and by my back-of-a-beermat calculations I’d be paying c.£25k in CGT. Quite happy to be proven wrong, tho!).
so you should have owned it for 96 months (lets call that 100 for ease of maths) and lived in it for 24. You get 9 'free' months, so tax is due on 100-33 (67%) of the increase in value. The extra breaks I had (it used to be 18 months 'free' - plus 40k extra bonus no-tax per owner) are gone now.
assuming you're a higher rate tax payer, you'll pay 28% tax on that 67k, minus the 12k allowance, so 28% of 55k is £15kish. if its co-owned with someone, you get the 12k twice, thus further dropping the tax owed
